Roberto suggests that a vendor and its franchisees (which help the vendor achieve greater scale) could deliver migration & implementation services in a better fashion (price, time, quality, etc.) than an enterprise’s internal IT staff.

I’m playing devil’s advocate here but two things come to mind:

Customer Choice:
On paper, very little prevents a 3rd party vendor from providing paid support, services, training or documentation for an open source product. I’ve written previously about how pure-play OSS vendors pronounce: “it’s open source, so you can take your business elsewhere if you don’t like how we’re meeting your needs”. In reality, very few open source projects have a plurality of vendors with major participation in the project. As a result, customer choice is often limited, albeit more open than in the case of a traditional software product.

Being able to choose between franchisees could help with customer choice. But there would be a limited number of franchisees per geographic region. More importantly, if you have a beef with the open source software vendor, a.k.a. the franchisor, having access to any number of its franchisees doesn’t really give you increased choice in to voting with your wallet and spending your IT dollars with a competitor.

Tomorrow’s Competition?:
My bigger question is what happens when a franchisee decides that they don’t want/need to renew their franchise license. Let’s suppose a franchisee decides to offer the same services and maybe even new ones (like technical support) that they were not able to previously as a franchisee. The only difference is that the franchisee is not going have the “Certified by Franchisor” logo anymore. Would this matter much to customers that the franchisee has been able to build relationships with? Would the certification matter with customers who have firsthand experience of the franchisee’s work? The franchisee could take the percentage they were paying the franchisor and split it between a lower price for the customer and higher profits to themselves (i.e. the ex-franchisee). Now, the new regional franchisee(s) would likely go back to the franchisor and ask for some form of concessions in order to compete with the lower priced vendor who was the previous franchisee for that region, who also owns many customer relationships. This could impact the franchisor’s bottom line.

The lack of competition within most open source projects is central to the controlling vendor’s ability to extract the optimal level of revenue possible from customers. Introducing potential (future) competition into an open source project needs to be balanced against the potential revenue and product penetration achieved through franchising.

Could today’s franchisee become tomorrow’s competitor?

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7 Responses to “Choice & Franchising Future Competition?”

Customer Choice
Today customers, as you pointed out, are already able to choose among few IT firms.
The franchising model is a promise for a better kind of choice for customers, because it comes with:
– a fixed price;
– a certified vendor using standard procedures;
– a service contract with Service Level Agreement.Today many customers are still unaware of how OS might impact their businesses, and a franchisor with a strong brand might spread the word much more effectively than any local player.Tomorrow competition
The scenario you depicted applies to everykind of franchising. I agree that if the franchisee is not certified by the franchisor anymore might well keep existing customers, but couldn’t get new ones taking advantage of the marketing program. And, yes, get new ones is really important if you’re selling basic services.

Re: Customer Choice
– While I agree with the stated benefits of a franchise model (standard procedures, etc.), I don’t know if that results in more choice. Today, I am within a 20 minute drive of 3 Walmart’s. That doesn’t really help with my choice if I want some good or service at a reasonable price and don’t want to shop at WalMart (just an example – I have nothing against Walmart).

Agree about a Franchisor spreading the word effectively.

Re. Tommorow’s Competition:
There are differences between a traditional franchise & an open source franchise. Mainly, ownership & control of the valuable good or service that is the lifeblood of the franchise.

Take Ben & Jerry’s, an ice cream franchise; Let’s say I buy the rights to a Ben & Jerry’s franchise, and in a few years decide to stop being a franchise. I keep my store, replace the Ben & Jerry’s ice cream with my home made Gelato (yum!!) and rename the store “Savio’s Homemade Gelato”. Since I already had a good customer base with my Ben & Jerry’s franchise, I expect to retain these customers. But, some will not return because they wanted Ben & Jerry’s ice cream (not my home made gelato). Others won’t return because they were attracted by the Ben & Jerry’s brand. It’s more than likely that my business will fail.

With open source, this won’t necessarily happen. If I’m no longer a franchisee of, say Red Hat, I can still offer my clients services around Red Hat products. I can even get my hands on the exact same code in Red Hat products. With my ice cream example, it’s like “Savio’s Homemade Gelato” being able to offer genuine Ben & Jerry’s ice cream. And I can even tell customers that I provide support and services around Red Hat products, even though I’m no longer a certified Red Hat franchisee.

Also, once a franchisee starts selling basic services and sees a market for advanced services, the franchisee will seriously consider offering those services also. When this happens it could cause some friction between the franchisee and franchisor who is currently the only vendor offering these advanced services.

Re: Customer Choice
The franchise model results in more choice just because there is none today, that’s it!
In other words I pointed out that customers will have eventually one more option.

Re. Tommorow’s Competition:
You say there are differences between a traditional franchise & an open source franchise, naming ownership & control of the valuable good or service.
But I see a huge difference from the Ben&Jerry case you reported. How could you possibly assure your customer you’re delivering services respecting standard procedures and fixed prices, SLAs, local laws compliance if you’re not part of a network?
Why should a new customer choose you, eventually?
You see royalties like an (unuseful) cost in the long run, where I see training facilities, revenue sharing from suscription services sales, marketing and so on.

Re. Customer choice
Okay, I see what you’re saying about more choice because choice today is limited. It’s a good first step, but like I said, having 3 Walmart stores near me does not really mean I have “choices” if I don’t want to shop at Walmart.

Re. Tomorrow’s Competition
It seems we may disagree on the value of “the network”, or as I refer to it, “a certified franchisee”.

If I already own a relationship with a given customer, that customer doesn’t question my SLAs, local law compliance, standard procedures etc. They judge me by the quality of my work with them in the past.

Why would a new customer choose me if I’m not a licensed franchisee? Because I can point to 200 current customers who are happy with my work, or because one of those 200 current customers recommends me to a new customer.

Yes, I see that a franchisor can provide some value to the franchisee, especially in terms of marketing. But unlike a traditional franchise, where a franchisor is able to get a much better deal on purchased goods (i.e. chair, fridges, ice cream) because they are buying in bulk on behalf of their franchisees, this is not the case in an open source franchise.

Come to think of it, the only things of real value that an open source franchisor brings to the table are the product, marketing around that product and training around that product.

Now, since that product is open sourced, it’s not like a 3rd party, non-franchisee, can’t get access to the product.

Next, a 3rd party, non-franchisee, can still benefit from the marketing around the open source project because the 3rd party can claim “We provide high quality, low-cost, services for XXXXXXX” where XXXXXX is the open source product. And since the vast majority of medium and small sized companies buy IT through a few trusted advisors who they’ve worked with for many years, if one of these trusted vendors were to make such a claim, then the company would want to listen.

Lastly, the training: A 3rd party non-franchisee could take courses from the franchisor (just as any customer could) and then learn the product well enough to not require on-going training. Participating on the mailing lists or attending local user group meetings would help keep one current also.

In the end, I think that the lack of control (i.e. the franchisor doesn’t have strong ownership over a valuable, scarce, asset) what will cause prospective open source franchisors to think twice.

I am not a tech person and have only a cursory understanding of open source. However, I’ve been creating and growing franchise systems for 18 years and offer these thoughts:

The franchisor gets additional, not diminished, control by growing through franchising rather than other, looser forms of distribution, dealer networks, etc. The argument against creating competitors is actually lessened through the franchise model.

The key to success, and even maintining the franchise alongside other forms of distribution, is providing real benefit to the franchisees on an ongoing basis. This is not simply through combined advertising, etc. but by providing a strong community and support environment, as well as tools for growth, unavailable to the unaffiliated or non-franchisees.